Goodbye Mob, Hello Liquor Wholesalers

I recently received an e-mail from a person who works in the alcohol trade. It was an e-mail in response to this recent post about a scathing account of the Texas Alcohol Regulatory system. The e-mailer didn’t want his name used, but did suggest I consider the following:

"The partnership between Government and alcohol distributors works. Distributors deliver huge amounts of cash to politicians and the politicians deliver protection against competition to the distributors. This leads to more powerful distributors who have even greater means to give cash to politicians. If this reminds you of how the Mob used to conduct business with the authorities it should. It’s identical. Except for one small matter. It’s legal for alcohol wholesalers to act this way."

It’s an interesting point.

Recently in Texas the two largest wholesalers there gave $1.6 Million to elected officials in a 10 week span following the November elections. These "donations" came at the same time the wholesalers were lobbying to change a law that would allow them to become much more powerful and profitable in the state at the expense of others in the alcohol trade.

Wholesalers not just in Texas but across the country are constantly asking that laws be changed or laws be kept in place. It does not matter how silly the new law may be or how archaic and detrimental to free trade the old law may be. The commonality between all the things the wholesalers ask for is that it benefits them and makes them more powerful at the expense of alcohol producers, alcohol retailers and consumers.

Take for example this situation. Last year the Associated Beer Distributors of Illinois lobbied to change the law in Illinois to both stop any direct shipment of wine to consumers and to remove the privilege IL wineries had to sell directly to retailers and restaurants.

What do these two position have in common? They both hurt wineries and will increase the profit of wholesalers. Consumers and local retailers would also be hurt. By the way, the Associated Beer Distributors of Illinois might be the most power state wholesaler organization in America.

But that aside, how do these folks justify this blatant power grab at the expense of others?

"Without the three-tier system to protect state revenues, in
most cases, direct shipping to consumers evades the State Liquor
Gallonage Tax and Sales Tax resulting in the potential loss of millions
of dollars to the State of Illinois," said Donna Spagnola, ABDI
president and president of Central Beverage Co. "It also protects the
public by decreasing youth access to alcohol via the internet, mail
order and by phone. The three-tier system is tried and true and its
value must be protected."

Besides the fact that this entire statement is an inaccuracy, it all comes back to the "3 tier system".

This "system" was put in place in the early 1930s after the end of prohibition. The 1930s. Let me reiterate: The 1930s.

The State-mandated three-tier system demands that producers sell to wholesalers, wholesalers sell to retailers and restaurants and the retailers and restaurants sell to consumers. The idea was to prevent the pre-prohibition problems associated with producers having an interest in or influencing retailers and saloons in was that led to excessive drinking and eventually to prohibition. The justification for the three tier system was to assure the product wasn’t tainted and to make sure no undue influence led to excessive marketing tactics.

The 3 tier system was put into place in the 1930s!

Today, 70 YEARS LATER,  the main social concern regarding alcohol is that minors not get their hands on it. It should be pointed out that wholesalers have absolutely no role in assuring this does not happen. Furthermore, the existence of the three tier system plays no role in helping stop this from occurring. In fact there are almost no examples in Illinois of anyone being fined or prosecuted for selling alcohol to a minor that was delivered via direct shipping. However, there are hundreds of examples of minors getting their hands on alcohol using the traditional three tier system.

Wholesalers would argue that direct shipment of wine to consumers ought to be stopped because of the threat that minors will use it to obtain alcohol. Where is the call to shut down bars and liquor stores…where minors almost always are found to get their alcohol? There is no call. You see, these are places the wholesalers sell to and make a profit off of.

The argument that direct shipment of wine to consumers prevents states from collecting taxes is equally without merit. Show me a winery or retailer and I’ll show you a check book.

Yet, the wholesalers like the three tier system and defend it as though nothing has changed in 70 YEARS. In the 1950s there was no Internet and only very inefficient ways to deliver alcohol over long distances. In the 1950s there were relatively few wineries and literally 1000s of wholesalers all competing with each other. today there are nearly 5000 wineries and no more than three or four dominant wholesalers in each state.

Yet because of the wholesalers successful "partnership" with the various states, little has changed in 70 years. Well, that’s not true. For the most part, the Mob has gotten out of the business of liquor distribution and now the "wholesalers" have that role.

Anything the average wine consumer can do about this? Yes.

Sign up with Free the Grapes and Act when they call attention to another attempt by wholesalers to manipulate the alcohol regulatory system to their benefit and against your interests.

Sign up for the Specialty Wine Retailers Association  mailing list and keep informed of when your right to obtain wine from retailers around the country is compromised by Wholesalers manipulations.


5 Responses

  1. Nathan E. Rodakirk - February 16, 2007

    Before prohibition there wasn’t a wholesaler…it was a bootlegger…we have a long tradition of opposing authority. We’re outlaws….remember, that’s our heritage, our roots.

  2. Terry Hughes - February 17, 2007

    Tom, if it’s this bad with alcohol, imagine if they legalized, regulated and taxed weed…

  3. Dennis Mitchell - February 20, 2007

    I’ve long thought the major liquor distributor in the US was “The Mob”.

  4. Bill Wilson - February 20, 2007

    You’ve hit this nail square on the head, Tom. Couldn’t have said it better myself.

  5. Mark Finley - February 20, 2007

    It’s not that times have changed that much since the 30’s, it’s just that there was an incrediable amount of bad regulation that came out of that era. Sure, we’ve learned that you don’t tighten money if the economy is heading south, you don’t enact trade barriers if you want to grow much and that bank consolidation is not necessarily a bad thing. But in other areas, mostly agriculture (don’t get me going on peanut allocations or dairy supports) we’re still living with a lot of brain dead regulations. The 3 tier system is just another example.

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